A single share of Yeti Holdings Inc (YETI) is currently selling for $36 and change. It is quite remarkable that the stock was selling for a mere $16 back in January of 2019. A substantial portion of the stock’s increase occurred in the past month. YETI was trading around $29 per share back in early July. It would not be a surprise if the stock broke through the $40 threshold by the end of the summer.
Below, we take a look at whether this Austin based seller of coolers and drinkware products can sustain its upward momentum.
How Yeti Makes Money
Yeti is best described as a lifestyle brand. Outdoorsmen including hunters, fishermen, campers and others who enjoy the beauty of nature flock to this company’s products. Yeti makes ice coolers that can take a pounding and still function without flaw. The company also sells drinkware products and some apparel to boot. In fact, the company sells more t-shirts and drinkware products than coolers. Yeti executives should be commended for their strategic use of product placement in the likes of Bon Appetit magazine and HGTV to connect with new audiences. The overarching strategy is to get the company’s products exposed to people it normally would not reach, ultimately bolstering its customer base and selling that many more units.
Yeti’s advertising team deserves credit for its creative marketing tactic of claiming to have developed rural America’s answer to the city scooter phenomenon. This off-the-wall marketing stunt seemed a bit outlandish, yet it drove a ton of people to the company’s website. Yeti claims 60% of these visitors had not visited the company’s website in the past. The best part about Yeti’s business is its direct-to-consumer sales channel is one of its primary drivers of growth. All in all, Yeti’s direct-to-consumer sales represent 40% of the company’s aggregate sales.
Yeti sells its products directly to customers by way of its website, its retail stores and Amazon.com. However, Yeti is also experiencing success selling through industry middle-men. As an example, in a recent conference call, Dick’s Sporting Goods executives heaped on the praise for Yeti’s unique in-store cooler and drinkware displays.
Yeti Products
Though Yeti is universally lauded for its incredibly rugged coolers, the little-know truth is the company’s drinkware sells much better than its coolers. The company’s coolers account for 38% of sales, while Yeti drinkware comprises about one-half of sales. However, Yeti is one of the many American companies that has taken a hit as a result of the trade war between the United States and China.
Yeti’s products have been hit with the List 3 tariffs that spiked to 25% a couple months ago. The fact that a trade agreement between the two countries is not looming on the horizon means Yeti will continue to take a sizable hit across posterity. However, even if Yeti has an underwhelming quarter or two until the trade war reaches a conclusion, the company’s stock will likely still prove appealing to investors.
Why Yeti Dropped in May
Yeti has an impressive chart yet the company’s stock dropped about one-third in May. The sell-off is a result of investors determining its first quarter figures and guidance for upcoming quarters were less stellar than expected. Though Yeti’s first quarter results showed sales/earnings were much better than most analysts anticipated, the truth is the stock might have been over-bought at that point.
Even though earnings guidance increased after the first quarter numbers were released, investors still took money off the table. Part of the problem was that Yeti recorded revenue in the first quarter for items that did not actually ship until the second quarter. However, company executives anticipate sales for the entire year to climb about 12%. Target earnings are now set at $1.04 per share. This figure is quite the hike from prior guidance for a target earnings of 99 cents per share.
Buy, Sell or Hold?
Yeti is a brand name that is likely here to stay for good. If you were able to travel through time 10 or 20 years in the future, you would likely find Yeti’s products being used across the world even by those who are not into hiking, biking, fishing, hunting and camping. This company’s creations have legitimate mass appeal. The fact that Yeti is based in Austin bodes well for its future as the capital of Texas is jam-packed with trend-setting influencers more than willing to tote Yeti products wherever they go.
Yeti critics question whether the company should attempt to sell even larger and larger products, which appears to be the current plan. Take a look at the company’s latest storage containers, and you will find there is an abundance of room. However, there is no reason to assume Yeti will limit its target market to outdoorsmen. The company will likely expand to additional markets where durable storage is a necessity.
From construction sites to mechanics, truckers and beyond, there are all sorts of people and work environments in which rugged storage containers are necessary. Give Yeti enough time and you will likely find the company’s products saturate an array of industries. Buy and hold.
Regards,
Ethan Warrick
Editor
Wealth Authority
